What does "mortality risk" mean in insurance?

"Mortality risk" refers to the statistical risk of an individual's death occurring within a specific timeframe. In the context of insurance, this concept is crucial because it helps insurers assess the likelihood that they will have to pay out a death benefit to a policyholder's beneficiaries. By calculating mortality rates, insurers can determine premiums and overall policy pricing to ensure that they remain financially viable while covering potential claims.

Understanding mortality risk is essential for an insurance agent as it directly impacts underwriting, which is the process of evaluating and classifying risks to determine appropriate coverage and pricing. This statistical analysis enables insurers to create a risk pool, allowing them to offer insurance coverage to a larger population while mitigating financial losses.

The other options touch on different concepts related to risk and finance but do not accurately describe what mortality risk specifically signifies in the insurance industry.